There is a difference in thinking here. Many people think about the car industry in terms of what F. A. Hayek called Scottish or British rationalism. They see that it is an industry that has grown up over time. They understand that like other industries it has evolved, it is not the product of deliberate design. They see it as particular instance of the phenomenon of evolving industry. They think (rightly in my view) that general principles that have proven correct in the past apply here, there is nothing special here. One of those principles being that bad companies should be allowed to fail and go bankrupt.

People think of the financial sector differently. Look at the words they use, often commentators speak of the banking SYSTEM. As an engineer I speak about computer systems and communications systems. I call them systems because they are constructed by rational engineering principles by conscience human thought. Talking about the "banking system" is wrong-headed. It is like an engineer saying that there is a computing industry in the computer they are using. (It is mostly correct though to talk of the Federal Reserve system). This attitude is what Hayek called Cartesian or French Rationalism. People see the financial sector as something that is mechanical and rationally designed. When a portion of it fails they see it as a component that requires replacing or repairing. They don't think about it as an industry.

The crisis goes directly to the difference between schools of political thought. Socialists often see rationality as the answer to every problem, particularly their own rationality. They see the past as wild and foolish and they see most of their fellow humans as similar. But they think that they and their fellows can look at the relevant facts and come to a conclusion about the best way forward. Designing society is like designing a machine. Hence, socialists make plans for bailing out both the finance industry and the car industry. After all, how hard can it be? And what is the alternative? Socialists see everything done by others as chaos.

Conservatives and Classical Liberals look at things in a much different light. They think that various parts of society have evolved. What is needed first is to understand how that evolution has taken place. It is doubtful that the rational abilities of a few people can understand all of the particulars. The market communicates information between the various parties and ensures that much of it need never be communicated. This is not something that could be replicated by a few smart people. Hayek said "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

In current times though conservatives have taken on the more french idea of rationality as applying to the financial industry. The thought is that if the big banks are not bailed out then there will be chaos which will have a great effect on their customers and the economy as a whole. There is some truth in this. Ironically though this truth comes because of earlier actions taken on the basis of a the same sort of philosophy. In particular the Federal Reserve system protects the commercial banks in such a way that makes contagion more likely.

This is why the auto bailout is a bit of a distraction. What is most important at present for the western countries is to reestablish a financial industry. Not a faux-industry run from the centre through the Federal Reserve and the regulators. A financial industry will work, because other industries work. A financial system however stands little chance of working in the long term.

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Wait... that's kind of moot now since the White House passed the bailout. Nice goin, Dubya. One more colossal fuck-up before you leave office. Have these last few months been Bush's efforts to get a jump start on the socialist program that we're soon going to experience?

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.

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It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Err ... who would you have in mind? And would they really want to be burdened with any of the three? And what other companies have experience at making and selling cars?

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Wait... that's kind of moot now since the White House passed the bailout.

There's been a lot of talk lately, both in Congress and in the media, about Chapter 11 bankruptcy reorganization as a strategy for General Motors. While this has worked well for airlines, I don't think it's an option for GM, for two reasons:

* Buying a car is a long-term relationship. When people buy an airline ticket, they only care if the airline is around long enough to make the trip. When they buy a car, though, they want some reassurance that the company will be around long enough to make good on the warranty. If people hear that GM has declared bankruptcy, they will flee dealerships in droves, robbing the company of the income it needs to rebuild itself.

Does that mean then that every company that makes a product that involved long-term relationships should be spared from bankruptcy? Certainly Bankruptcy will not work well for GM. However it is better than liquidation or a bailout.

Quote from: Liberal Seagull

* AIG issued credit default swaps on GM. A lot of credit default swaps, apparently; according to Forbes.com, estimates are that AIG's exposure is about 10 times the outstanding debt. If GM declares bankruptcy, AIG is on the hook for that money, and guess who currently owns AIG? That's right, the government. In a nutshell, if we let GM go bankrupt, we taxpayers are likely to end up paying out eight to ten times as much as if we bail them out.

OK, after the government bails them out who is going to insure their debt? The current bailout is not enough to secure GMs future. AIG and through it the government will likely have to take this cost anyway.

As far as I understand the issue the current price of Credit default swaps on GMs debt indicate that bankruptcy is almost a certainty. If the market thought the bailout would affect anything this wouldn't be the case. Of course the market could be wrong, but I doubt that.

It is likely the only way to prevent GM going under will be regular bailouts.

Quote from: Ihlosi

Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.

What does that have to do with anything?

Quote from: joshbreton

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Quote from: Ihlosi

Err ... who would you have in mind? And would they really want to be burdened with any of the three? And what other companies have experience at making and selling cars?

You are both thinking too much in the french rationalistic manner I talked about earlier.

You don't need to solve these problems, bankruptcy will solve them. Whoever can make use of the capital will buy it, history demonstrates that. If another company can use all of GM they will buy the whole company. If not they will strip out the profitable parts.

It's actually not so much a difference in philosophy as a difference in neccessity. While I was against the bailout for the banks as well, the best reason I have thus been given is:

Well, we all know that there is way, way, way more money out there then was issued, when people realize that banks lend out vastly more then they take in, they're gonna be pissed.

This is a simplistic method of pointing out that the government, since FDR, has been committing a style of wide-scale fraud. While it is debatable as to wether excessive lending (ie: lending money I don't actually -have-) is fraud, the government cycle works something like (simplified, because a lof of people don't much care for the math, so we have four consumers, a bank, and the government), for this example, there is no market and

Gov: Here's 100$Con A: I put it in the bank.Bank: I keep 10$ and loan out 90$Con B: I put in bank too!Bank: I keep 9$, and loan out 81$Con C: I like banking!Bank: You're a mongoloid, so I loan out 73$Con D: I buy government bonds for 73$, now the government has more money!

Gov: I take your milkshakes give me 25$ each, then I have a balanced budget!ConA,B,C: Gives us monies bank, we needs it!Bank: I only have 27$, I go ask for monies to make up deficet from federal reserve!

Fed: That isn't a 48$ shortfall, it's a 4.8 trillion dollar shortfall!Bank: Can I haves moneis?Fed: We no have that much monies for you!Gov: No-one is paying taxes, they all have no monies! I know, I use 48 of the 73 of government bonds monies to issue monies, then I can collect the monies!Con D: I want my bonds monies!Gov: Uh-oh!

It's a little more complex then that, the origonal argument was that excessive issuance wasn't fraud becasue everyone who mattered knew what was going on, but no, most people don't know that their monies is no actually in the bank. In tha above example, you can see how with merely four customers, and while holding a 10% required reserve, the bank quickly turns 100$ into 364$ with no additional production.

This is what was origonally meant by inflating the monatary supply, which is okay until someone, let's take Con A, asks for his full 100$, which the bank does not have.

Normally everyone doesn't ask at the same time, unless too many people need money at the same time, say they were all investing in a "sure fire never fail make money for nothing" scheme. This is how a 2% utter failure rate snowballs and the Reserve is left on the floor crying. However, the government derives taxes from this unissued money and so needs the cycle to continue.

Pretty much everyone in the 30s pointed out that this was the long term implications of FDR's belief that it's okay to play very fast and loose with money (To take a pot shot at Obama, he has said FDR was his favorite president, not the man to imitate right now), no-one after FDR could get out of the cycle because it would have meant admitting the government didn't have...well...it's actually didn't have all the money it had promised.

This is why the government needed to support the bailout, because it's up to its elbows in the churn and while it may be for the long term good if people knew what was going on and new regulations were put in place, god forbid you ask anyone to make less money.

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"No common man could believe such a thing, you'd have to be an intellectual to fall for anything as stupid as that."-Orwell

Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.

What does that have to do with anything?

It's a big chunk of the problem. Toyota can be more profitable since they don't have to deal with a constant drain on their cash.

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You don't need to solve these problems, bankruptcy will solve them. Whoever can make use of the capital will buy it, history demonstrates that.

Well, yes. Even if that means tearing down all the factories, using the land for parking spaces or landfills (Hey, if you got the whole thing for $10 ...). I personally have to deal with this kind of "lack of solution" every morning, since part of the building I work in is now used by a "logistics" company (it used to belong to HP) and having to use a major truck route to get to the parking spaces is no fun at best (and dangerous at worst, we've had numerous accidents already with trucks backing into cars and such).

But yeah, it's some kind of solution to the "vacant office building" problem.

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Wait... that's kind of moot now since the White House passed the bailout. Nice goin, Dubya. One more colossal fuck-up before you leave office. Have these last few months been Bush's efforts to get a jump start on the socialist program that we're soon going to experience?

So of the four companies, the one who receives government R&D grants from Japan is the one who's doing well, and this is your basis for saying that the government shouldn't get involved in the problem?

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"If it had not been for the discontent of a few fellows who had not been satisfied with their conditions, you would still be living in caves. Intelligent discontent is the mainspring of civilization.

Progress is born of agitation. It is agitation or stagnation." -Eugene Debs (1855- 1926)

You don't need to solve these problems, bankruptcy will solve them. Whoever can make use of the capital will buy it, history demonstrates that. If another company can use all of GM they will buy the whole company. If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.

It's not only a little more complex than that - in any scenario where you're dealing with lending and completely forget to account for the debt, you'll end up "inflating the money supply". In the example you give, there's $344 in balance, but also $244 in debt. And there's only $100 that can actually be spent by someone.

You are both thinking too much in the french rationalistic manner I talked about earlier.

You don't need to solve these problems, bankruptcy will solve them. Whoever can make use of the capital will buy it, history demonstrates that. If another company can use all of GM they will buy the whole company. If not they will strip out the profitable parts.

Bankruptcy won't solve the crisis of underconsumption it would make the crisis worse. The the big three auto companies make up a huge chunk of consumption of commodities of both consumer goods and industrial goods and there is currently no industrial growth in the USA to make for the drop in consumption that would be caused by reduced wages (and giving workers cheap credit won't work anymore).